Crypto is at the center of the U.S.-China power struggle.
Crypto is at the center of the U.S.-China power struggle.
The Battle for Cryptocurrency Supremacy: How China is Winning and the US is Lagging Behind
Chinese spy balloons in America and naval provocations in the Taiwan Strait create exciting and dramatic headlines, but just last year Chinese President Xi Jinping himself argued that “technological innovation has become the main battleground of the global playing field, and competition for tech dominance will grow unprecedentedly fierce.”
Whether U.S. policymakers like it or not, cryptocurrency and blockchain technology are a primary battleground in America’s contest with China—and the U.S. is dramatically falling behind.
China’s Dominance in the Cryptocurrency Space
Chinese-affiliated cryptocurrency exchanges account for the vast majority of global trading. The Chinese Communist Party has already established bilateral agreements and deployed its central bank digital currency, the e-Yuan, beyond its own borders in places such as Ecuador, Peru, and other major port locations across South America. In addition, the Digital Currency Research Institute of the People’s Bank of China and the Central Bank of the United Arab Emirates have joined the Multiple CBDC, or m-CBDC, Bridge, a project to build a system for real-time cross-border forex payments.
In parallel, criminal networks operating out of China and its neighbors have stolen and laundered billions of dollars in digital assets globally, including in the U.S. Chinese intermediaries have helped North Korean hackers launder hundreds of millions in stolen crypto. Furthermore, an unknown Chinese transnational criminal network is behind the multibillion-dollar crypto scam called “Pig Butchering” that has plagued unsuspecting Americans looking to enter crypto markets for nearly a decade. Strengthening crypto markets in the U.S. would reduce the scale and effectiveness of these operations, protecting inexperienced investors from falling victim to such scams.
The US Retreats as China Advances
While China banned cryptocurrency exchange operations in 2017 and transactions in 2021, the other top 12 exchanges by volume all have affiliations with China or Hong Kong. This amounts to over $10 billion in daily trading volume that’s outside U.S. jurisdiction. Moreover, some of the largest American market makers and exchanges are moving offshore due to the current regulatory landscape. This includes companies like Jane Street and Jump Crypto, which have scaled back operations in the U.S. Other companies are searching for new headquarters in Dubai, Singapore, Hong Kong, and other jurisdictions with established regulatory frameworks. Even Coinbase, the U.S.-based publicly traded exchange recently sued by the SEC, is considering setting up an international hub in the United Arab Emirates. This shift offshore means America is losing its influence over the crypto industry’s trajectory.
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The Implications of China’s Crypto Dominance
A future where China leads in the crypto industry has several implications. It means less financial freedom for those who adopt China’s system and a limited ability for the U.S. to impose sanctions and financial penalties globally. It also results in diminished reliance on U.S. financial firms and the U.S. dollar. More worryingly, it provides more opportunities for hidden financial crimes, as seen with the rampant money laundering operations orchestrated by Chinese criminal networks. It also reduces the creative influence and innovative potential that the U.S. can bring to the industry.
America needs a more thoughtful and strategic response than simply cracking down on exchanges. Despite the challenges faced by cryptocurrency markets, decentralized finance has proven its value proposition and will rebound to continue playing a growing role in global markets.
“When China announced that a digital Yuan would be piloted in May of 2020, Mu Changchun, the head of the Digital Currency Research Institute of the PBoC, told a forum in Hong Kong about the nation’s ‘horse race approach’ to cryptocurrency, and that ‘the front-runner will take the whole market—who is more efficient, who can provide a better service to the public—they can survive in the future.’”
In order for the U.S. to win this race, it must nurture innovation in decentralized finance—the only way U.S. interests can come out on top. America’s national security depends on its ability to maintain an open society that encourages responsible technological innovation from bold thinkers and entrepreneurs.
Adam Zarazinski, the founder of the digital asset data analytics company Inca Digital and a major in the Air Force Reserve JAG Corps, emphasizes the importance of fostering innovation in decentralized finance. The opinions expressed in this article are solely his views and do not necessarily reflect the opinions and beliefs of ANBLE.com.
Together, the U.S. needs to recognize the significance of the battle for crypto dominance and take strategic steps to regain its position as a leading force in the industry. Failure to do so will result in long-term consequences for the country’s financial freedom, global influence, and national security.
